ING: Gold Price on the Verge of Breakout

As the silver trade starts to heat up, gold, too, is poised for greater heights. Its well-documented and long-term consolidation, routinely coming up against a hard ceiling in the $1,350-$1,370 range, is yet again being challenged.

Four to five years of pent up accumulation is poised to explode higher once this remarkably stubborn upside resistance becomes support.

Gold has remained disappointedly range-bound through equity turmoil and rising geopolitical tensions. A flirt above $1360/oz last week was cut short by hawkish Fed minutes but more positive inflation prints could yet kick-start the returns needed to entice meaningful inflows.

Our bullish gold call centers on the belief that precious metal markets are still underpricing the full potential for inflation to pick up this year. Whilst this also raises the likelihood of a further three rate hikes in 2018, it will be the front-loading of inflation data that could spur gold’s long-awaited breakout, along with a little help from continued weakness in the US dollar and equity volatility.

Establishing itself cleanly above $1350/oz is proving gold's biggest hurdle, but when it is done, gold stands its best chance to capture further flows from funds stuck on the sidelines.

Higher inflation is coming. Last week’s core inflation (ex-food, energy) registered a one-year high of 2.1% and the US 10-year breakeven rallied to a fresh high of 2.14%.

Our economists expect inflation prints to remain high and nudge closer to 3% into summer now that a distortion from cell phone data pricing drops out of annual comparisons as well as support from a weaker dollar, rising housing/medical costs, and wage growth from a tightening labour market. Each positive data print will tempt gold closer to its higher range.